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The BREXIT Bulletin: The Big Winner is ... the DUP?

9th June 2017

Northern Ireland’s Democratic Unionist Party (DUP) would have been more than satisfied with gaining two additional seats overnight; having taken 10 of the region’s 18 seats. In fact the DUP usurped what was supposed to be a Conservative celebration.

What once appeared a shrewd calculation by Theresa May, has turned out to have been a reckless gamble. The Conservative Party, while remaining the largest party in Westminster, has lost its overall majority, losing 12 seats.

Whilst the UK has decisively returned to its trademark two-party politics, with Labour and the Conservative accounting for a combined 82% of the vote, this return has not been accompanied by a return to the tradition of large parliamentary majorities.

Indeed, May has indicated that she will seek to run a minority government, relying on the support of the DUP on a vote by vote basis in order to pass its legislative agenda. It is unclear how sustainable this relationship will prove to be and whispers of another election in October are rife.

May’s gamble has clearly not, as she repeatedly promised, provided her with the conditions necessary to deliver “strong and stable” government. It has in fact weakened her position at the tiller ahead of the Brexit negotiations.

Her Premiership looks like it has been holed below the waterline, with big players in the Cabinet keeping remarkably quiet. Whether this will prove fatal will become clear in the coming days. May is due to meet with Cabinet Ministers on Friday evening, to carry out an enforced reshuffle following the toppling of several ministers. In the coming weeks she must successfully surmount a number of major hurdles.

The first is a meeting of the influential 1922 Committee of Conservative MPs next week. Many of its members are reportedly furious with the manner in which the campaign was run and at seeing their majorities slashed. The second will be in passing the Government’s legislative programme, Queen’s Speech, on the 19 June.

Brexit negotiations that were penciled in to begin on 19 June may be postponed, further eating into the limited time available to conclude negotiations.

One thing that can be said with relative certainty is that a large volume of copies of the DUP’s manifesto will have been printed out and downloaded today. Equally, the Northern Irish Representation in Brussels and the lone DUP MEP, Diane Dodds, may well have busier summers than expected.

The highlights from the UK:

May busts the Conservatives flushUK Prime Minister, Theresa May, called the General Election on the premise of securing a personal mandate for the Brexit negotiations. This strategy has failed. There is a hung Parliament and the Conservatives lost seats. Prime Minister May is seeking to rule with the cooperation of the Democratic Unionist Party (DUP) on the basis of a vote by vote confidence and supply arrangement. We can expect considerable political uncertainty over the coming weeks.

Clear trends in the results have been few and far between, with sizeable regional variations in the direction and quantity of swing. Labour have seen huge increases in their vote share in London and other areas which voted remain in the EU Referendum. Large Conservative majorities have been overturned in Ipswich, Reading East and Canterbury whilst bellwether seats such as Lincoln turned Labour. The Conservatives saw large increases in their vote share in swathes of the North and Scotland but only in the latter were these swings of sufficient size to take their target seats. In Wales, where the Conservatives made large gains in the local elections just one month ago, Labour have gained seats at the Conservatives’ expense.

Although for now the Conservatives remain in power, there will be a number of forced Ministerial changes. Jane Ellison, James Wharton, Simon Kirby, Gavin Barwell and perhaps most notably Conservative manifesto author Ben Gummer, have all lost their seats. There have also been a number of high-profile political casualties in other parties. The SNP’s Alex Salmond and Angus Robertson lost, as has the former leader of the Liberal Democrats and ardent europhile Nick Clegg.

Reports are already swirling of the Conservatives planning a change in leadership, however, Labour Leader Jeremy Corbyn looks secure. He may have lost this election, but he has won the battle of expectations and has improved on Labour’s result in 2015, both in terms of vote swing and seats.

The Grayling ViewRegardless of whether May survives the week, the UK Parliament is facing a period of legislative paralysis. Controversial Conservative manifesto pledges such as grammar schools, pensions and social care reform face no prospect of progress. More urgently, for Brexit the ramifications are potentially huge.

Negotiations are due to begin in a matter of days and it is unclear who will be leading the UK Government. In terms of the makeup of the House of Commons, early analysis indicates there is unlikely to be a parliamentary majority for exiting the single market, let alone for carrying out the massive legislative task of transferring EU law into UK law.

The last 24 hours have seen yet another political shock. The UK has returned resoundingly to two-party politics with May securing the most Conservative votes since 1992 and Jeremy Corbyn securing the most Labour votes since 1997. Both parties polled at over 40% of the vote, in any other election year this would have been enough for landslide majorities and certainty. In 2017’s unique political climate it has translated into political stalemate and more uncertainty.

If the UK is to be led by a majority Government at any point during the Brexit negotiations, another election will need to be called. The German Federal Elections will be held on 24 September; the opportune window for another UK election is already closing rapidly.

The highlights from Brussels:

EU UK election reaction round-up

European Commission: Jean-Claude Juncker – President of the European Commission“We are ready to start negotiations ... I hope that the British will be able to form as soon as possible a stable government. I don’t think that things now have become easier but we are ready”.

Michel Barnier – EU Chief Brexit Negotiator"Brexit negotiations should start when the UK is ready. The timetable and the EU’s positions are clear".

Gunther Oettinger – Budget and Human Resources Commissioner“We need a government that can act”. “With a weak negotiating partner, there’s the danger that the negotiations will turn out badly for both sides … I expect more uncertainty now”.

European Council:Donald Tusk – President of the European Council“We don’t know when Brexit talks will start. We do know when they must end”.

European Parliament: Guy Verhofstadt MEP – Lead Representative on Brexit Matters“Yet another own goal … will make already complex negotiations even more complicated”.

Manfred Weber MEP – Chairman of the European People’s Party (EPP)“The clock is ticking for Brexit. Therefore the UK needs a government soon. The date for the beginning of negotiations is now unclear. May has brought chaos to her country”.

Gianni Pitella MEP – Chairman of the Socialists and Democrats (S&D)“May gambled with the UK and the EU’s future. She wanted a stronger negotiating hand and has ended up with a hung parliament. She has no credibility in the UK or in Europe. She must resign. Negotiations must start with the minimum of delay”.

Elmar Brok MEP – Brexit SherpaEuropeans are disappointed that May has failed to gain the majority that could have helped her to override hardliners within the Conservatives. “Now no Prime Minister will have that room for maneuver”.

Member States:Edouard Philippe – Prime Minister of France"I don't believe that one should read into the result a shift in the position expressed by the British over Brexit".

The Grayling ViewContrary to the media spin in London, Brussels is ready, willing and able to start negotiations. Political disarray in the UK is driving the delay. High-level sources suggest that negotiations are now unlikely to begin as scheduled on 19 June.

Furthermore, the EU-27’s hand has been further strengthened. May called an election to win a mandate for a hard Brexit, patently she has been denied it. Uncertainty and delay in Westminster whilst a new government is formed and a ‘new’ Brexit strategy drafted will continue to eat into the precious two years provided for under Art. 50. Time pressure is more of an issue for the UK with any extension to negotiations entirely in the gift of the EU, who may choose to leverage it in the talks. EU leaders will however be disappointed by the continued absence of a partner with whom to negotiate. Indeed, they would quite like to get down to business.

On the one hand, ‘no deal’ is more of a possibility as the UK struggles to find the political will or technical expertise to agree its position. On the other a radically softer Brexit may become possible – a ‘camouflage Brexit’ - as the UK may seek to stay in the Single Market and/or the Customs Union as it has neither the strength to negotiate a bespoke hard Brexit nor the domestic backing to do so.

In either world, the onus is on business to offer negotiators ideas, solutions and solid data, as it becomes ever clearer that on the UK side, at least, the capacity and power to negotiate a good deal is lacking.

Highlights from the Member States:

Poland’s balance of Brexit risks and opportunities The Polish Government’s three Brexit priorities correspond to the EU’s sequencing of the negotiations: citizens’ rights, reaching a financial settlement and establishing the basis for the future relationship between the EU and the UK. Poland’s Minster for European Affairs Konrad Szymański has suggested that the aim should be to resolve the first two issues by the end of 2017. Beyond the negotiations, Poland will seek to ensure that the UK’s departure does not result in a reduction in the size of the EU budget.

Poland faces Brexit related risks, as the UK is Poland’s second largest trading partner and one with whom it enjoys a trade surplus. Additional trade costs in the form of potential tariff and regulatory barriers would inevitably damage this relationship, particularly in the tobacco and automotive sectors. In contrast, many economists claim that Brexit is an opportunity for the Polish economy which can offer a competitive and attractive location for business, with a relatively cheap, but well-educated labour force and a favourable geography. According to the Minister for Development and Finance Mateusz Morawiecki 30,000 jobs in Poland already rely on British investment.

The Grayling ViewPoland is a prime example of the reality that whilst the UK Government is the most vocal proponent of Brexit’s supposed opportunities, such opportunities are also available to the Member States of the EU-27.

Poland is certainly not being shy in attempting to woo UK businesses with the possibility that the Government could introduce fiscal and other incentives to induce relocation. Should competition among the EU-27 become too acute then it could undermine the unity that has so far characterised the EU’s negotiating position.

Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.The Grayling Brexit Unit is here to support, guide and inform the success of your business and identify how the political dynamics will change as a result of Brexit in both London and Brussels. We are your Brexit experts.No task is too big, too complex, or too ambitious - please contact Robert Francis Tel +32 2739 47 34 in our Brussels team or Jonathan Curtisin London for more information, and check out our brochure.

Grayling Team

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